BIZWATCH

By BERNARD BAUMOHL, JOHN GREENWALD, JOSEPH R. SZCZESNY AND ADAM ZAGORIN

TOO MANY JOBS?

Last week's economic news seemed to come gift-wrapped for the White House: unemployment fell steeply and unexpectedly to 5.1% in August, the lowest it's been since 1989. Yet with more people working and paychecks fattening, the alarm bells in the inflation firehouse known as the Federal Reserve Bank must be going off. Some economists believe that inflation is inevitable when the unemployment rate drops below 6%, because wages rise as the labor market tightens. Average hourly earnings in August rose by 0.5%, bringing wage increases over the past year to 3.6%. Throw in the torrid 4.8% gdp growth in the second quarter of 1996, and you can understand why many Fed watchers are expecting an interest-rate increase at the Fed's next meeting on Sept. 24.

That's unusual in an election year, but President Clinton may overlook it. Of the 250,000 jobs created last month, gains were especially strong for groups that Clinton is eager to please, including workers under 25 and over 54. Other winners included African-American males over 20, whose 8.1% unemployment rate is the lowest it's been since the early 1970s.

DOWN TO THE WIRE

The race for a new three-year auto contract shifted into high gear last week, when the United Auto Workers union chose Ford, currently the most labor-friendly of Detroit's Big Three employers, as the company it will bargain with first. The contract covering 400,000 autoworkers at the Big Three manufacturers expires this Saturday. The U.A.W. always zeroes in on one company in divide-and-conquer fashion, but in a break with four decades of tradition, the union has toned down its normally strident rhetoric and declined to set a strike deadline. Industry watchers expect the U.A.W. and Ford to coast home with a contract next week, which will set the pattern for subsequent talks at Chrysler and General Motors.

The U.A.W.'s real target is GM, which is under pressure from Wall Street to cut an additional 30,000 to 50,000 jobs--or up to 20% of its remaining U.S. hourly payroll--over the next three years. To do that, GM wants to buy more auto parts from outside suppliers. The No. 1 automaker uses in-house labor to build a whopping 70% of the parts that go into its vehicles, far more than its Detroit rivals. But the U.A.W. wants to save as many jobs as it can at GM, which could make the talks turn bitter.

MARCH OF THE SUPERSTORES

If you can't beat 'em, buy 'em. so said Staples Inc. by its actions last week when the No. 2 office-supplies superstore agreed to acquire No. 1 Office Depot for $3.36 billion in stock. Office Depot was relieved to end the battle with its hard-charging rival. "We're a lot happier to be together with Staples than to compete with them," said David Fuente, chief executive officer of Office Depot.

That's understandable. The deal will create a chain of 1,100 outlets in 47 states and 10 foreign countries. Fuente and Staples CEO Thomas Stemberg denied that a merger would lessen price pressure on the thousands of items, from pushpins to personal computers, on which the two often clashed. But analysts viewed the deal positively for exactly that reason. The combined companies would control about 10% of the $150 billion U.S. office-supply business, or about three times the slice held by No. 3 OfficeMax.

Fuente and other top Office Depot executives bought more than 130,000 shares of Office Depot shares in July. But those buys, Fuente said, came well before the merger talks got started four weeks ago. Nonetheless, regulators will probably take a hard look at both the timing of the stock purchases and the impact of the merger on the office-supply field.